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May 19, 2014

IA 25 2014: The Threat (or Non-Threat) of Robo-Advisors—Slideshow

It may be reassuring to hear that the big tech experts on our list this year don’t think robo-advisors are too much of a threat. If the only thing you do for your clients is asset allocation, you might need to take a look at your value proposition, but many of our IA 25 honorees agreed that robo-advisors could be an opportunity for advisors to provide services on a broader scale.

That doesn’t mean advisors can lull themselves into a false sense of security. Make no mistake, robo-advisors are a disruptive force. Just because they won’t take away your business doesn’t mean they won’t change it.

Click through the following slides to hear from the IA 25 honorees who shared their thoughts on these new competitors, a topic that, as Editor-in-Chief Jamie Green said, “came up unbidden so often that I began to bring it up on purpose.”

Bernie Clark

Executive Vice President, Schwab Advisor Services

Clark feels robo-advisors will exist as a “complement” to traditional advisors. “We’ve done a lot of work that shows most individuals still want a relationship” with a human advisor, he told Editor-in-Chief Jamie Green.

Clark suggested the solution may be for advisors to use some of the robo-advisors’ modeling tools “in their practices,” especially for “clients below their minimums or children of clients.”

If that doesn’t assuage advisors’ concerns about the competitive threat robo-advisors pose, he pointed out that online advice hasn’t had to perform in difficult markets. “If we have five years of the markets heading straight up,” robo-advisors “will do well; if we have three years up and two years down,” investors “will want to talk to somebody.”

(Photo: Tom McKenzie)

Dan Skiles

President, Shareholders Service Group

Robo-advisors may be able to provide simple advice cheaply, but Skiles reminded Editor-in-Chief Jamie Green that your clients have complex lives. “Life is not consistent; questions come up throughout the year that you never anticipated.” Robo-advisors provide a consistent investing experience, but human advisors “are there for those questions.”

For example, Skiles ticked off some issues that advisors help solve for their clients: staying knowledgeable about cost-basis legislation, how to pay for health care, whether the timing is right to do a Roth IRA rollover. He asked, “Can a robo-advisor answer those?”

Yes, if an advisor’s practice is “all about investments, maybe you should be concerned.” If you do more for your clients, though, but have had to turn some away because they don’t meet your minimums, maybe this is an opportunity. “I’d encourage advisors who’ve been raising their minimums year after year to think about a different offering that allows them to serve people with less money,” Skiles said.

Joel Bruckenstein and David Drucker

Founders, Technology Tools for Todoay (T3)

If an advisor isn’t providing much more than asset allocation services, “yeah, I think you’re in trouble,” Bruckenstein told Executive Managing Editor Danielle Andrus, “because robo-advisors are offering those kinds of services, if not for free, for next to nothing.” However, “most good advisors provide many, many services that go beyond just asset allocation.”

Drucker was magnanimous about robo-advisors. He said, “There’s room in the industry for all different sizes of players and all different types of players. We were told about 10 or 15 years ago that by now the industry would be all large shops, and smaller practitioners wouldn’t be able to survive. I think that’s been disproved.”

Schweiss said even more than regulation, advisors should maybe be more concerned about what “the rise of the online advice providers.”

“I’ve been in this industry serving advisors since 1989, and for as long as I have been doing this, advisors have told me ‘We can’t serve middle America,’” Schweiss told Editor-in-Chief Jamie Green.

Instead, those lower-net-worth people are “served by the IBD rep or by the insurance broker or a mutual fund company. Now we’re getting an answer to that need” with robo-advisors. “

If advisors don’t think robo-advisors can compete with the gentle touch of a trusted advisor, Schweiss reminded us, “At what point did Barnes & Noble not see Amazon as a threat?”

However, just because it happened to them doesn’t mean it will happen to you—after all, “Turbo Tax didn’t eliminate accountants, and WebMD didn’t kill doctors”—but that doesn’t mean you can ignore robo-advisors as a competitor.

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